管理層發言
Good morning, everyone. Thank you for being here. Welcome to the Saratoga Investment Corp. Fiscal First Quarter 2026 Financial Results Conference Call. Please be aware that this call is being recorded. At this time, I would like to hand the call over to Saratoga Investment Corp's Chief Financial and Chief Compliance Officer, Mr. Henri Steenkamp. Please proceed, sir.
Thank you. I would like to welcome everyone to Saratoga Investment Corp's fiscal first quarter 2026 earnings conference call. Today's conference call includes forward-looking statements and projections. We ask you to refer to our most recent filings with the SEC for important factors that could cause actual results to differ materially from these forward-looking statements and projections. We do not undertake to update our forward-looking statements unless required to do so by law. Today, we will be referencing a presentation during our call. You can find our fiscal first quarter 2026 shareholder presentation in the Events and Presentations section of our Investor Relations website. A link to our IR page is in the earnings press release distributed last night. For everyone new to our story, please note that our fiscal year-end is February 28, so any reference to Q1 results reflects our May 31 quarter-end period. A replay of this conference call will also be available. Please refer to our earnings press release for details. I would now like to turn the call over to our Chairman and Chief Executive Officer, Christian Oberbeck, who will be making a few introductory remarks.
Thank you, everyone, for joining us. This quarter, Saratoga Investment Corp. achieved a 17.9% increase in adjusted NII per share compared to the previous quarter, continued growth in NAV, and a strong return on equity that surpasses the industry average. We made 2 new portfolio investments and maintained solid performance in our core BDC portfolio despite a challenging macro environment. Continuing our strong dividend history, we announced a base dividend of $0.25 per share per month, totaling $0.75 for the second quarter of fiscal 2026. This annualized dividend represents an 11.8% yield based on a stock price of $25.44 as of July 7, 2025, providing a strong income opportunity. Our Q1 adjusted NII of $0.66 per share reflects the impacts of decreasing short-term interest rates on our mostly floating-rate assets and the effects of recent repayments, resulting in $224 million in cash available for investment or debt repayment.
We observed slower deal volume and M&A activity in the lower middle market due to recent tariffs and reduced new debt issuances. Despite these challenges, we realized multiple debt repayments and equity returns in Q1, generating $2.9 million in gains and investing $50.1 million into 2 new portfolio companies, 6 follow-on investments, and additional BB CLO debt securities. Our strong reputation and unique market position help us attract quality investment opportunities, while we remain careful with new commitments in the current market. We believe Saratoga is well positioned to handle both future economic opportunities and challenges. Our solid operating performance is supported by a high-quality, resilient $968.3 million portfolio, with all 4 challenged situations resolved. Our core non-CLO portfolio saw a $2.6 million mark-up, while our CLO and JV portfolios were marked down by $0.2 million.
Additionally, we realized $0.6 million from equity sales and further gains from other investments, leading to a $3.8 million increase in portfolio fair value for the quarter. By quarter-end, our total portfolio fair value stood at 2.1% below cost, while our core non-CLO portfolio was 1.7% above cost. Our strong financial performance indicates good underwriting across our growing portfolio companies and sponsors in well-chosen sectors. Our net interest margin rose from $13.7 million last quarter to $15.6 million, driven by an increase in non-CLO interest income as previous quarter-originated loans contributed full benefits and repayments happened later in Q1. Average yields remained stable with a $0.5 million drop in interest expenses due to the full quarter effect of repaying $44 million in SBIC II debentures and partially retiring a $20 million bond. The impact of shares issued through the ATM program resulted in a $0.04 per share dilution to NII.
Our credit quality for the quarter stayed strong, with 99.7% of credits rated highly, and only 2 investments on nonaccrual status, representing a small fraction of our fair value and cost. With most investments in first lien debt supported by strong enterprise values, we believe our portfolio and leverage are well structured for future uncertainties. As we navigate ongoing geopolitical and macroeconomic challenges, we are confident in our experienced team, robust pipeline, sound leverage structure, and rigorous underwriting standards, which allow us to enhance the size, quality, and performance of our portfolio for long-term shareholder returns. As always, maintaining balance sheet strength, liquidity, and NAV preservation is crucial for us. At quarter-end, we had a significant $430 million in investment capacity to support our portfolio, with funds available from our SBIC III license, credit facilities, and cash.
This cash level improved our regulatory leverage from 163.8% to 188.1%, factoring in available cash against our outstanding debt. Moving on to our fiscal 2026 first quarter performance metrics compared to the previous quarters, our quarter-end NAV reached $396.4 million, a 7.8% increase from $367.9 million last year and a 0.9% rise from $392.7 million last quarter. Our adjusted NII was $10.1 million this quarter, down 29.3% from last year but up 26.2% from last quarter. The adjusted NII per share was $0.66, reflecting a 37.1% decrease from $1.05 last year, yet a 17.9% improvement from $0.56 last quarter. Our adjusted NII yield was 10.3% this quarter, below last year but up from the previous quarter. The twelve-month ROE was 9.3%, exceeding last year's 4.4% and surpassing the industry average. Our NAV per share was $25.52, which is lower than the previous year's figures. Notably, the shift to monthly dividend distributions caused a one-time reduction in NAV per share this quarter, but it would have shown an increase otherwise.
While previous markdowns were noted for a few credits in our core BDC, our results indicate a return on equity above the industry average. Our long-term average ROE has remained robust, outperforming the industry for many years. The weighted average common shares outstanding increased this quarter, and adjusted NII was affected by the absence of an annual excise tax recognized last quarter. The decrease compared to the last year's first quarter was mainly due to lower AUM and interest rates. The average interest rate on our core portfolio was consistent with last quarter. Our total expenses for this quarter were slightly lower than last year. Overall, our assets under management have grown steadily since we assumed control, despite recent declines due to substantial repayments. We aim for long-term growth while managing credit quality prudently. With that, I'll turn the call over to Henri for a review of our financial results and portfolio performance.
Thank you, Chris. Moving on to Slide 6. NAV was $396.4 million as of fiscal quarter-end, a $3.7 million increase from last quarter and a $28.5 million increase from the same quarter last year. During this quarter, $6.4 million of new equity was raised at or above net asset value, respectively, through our ATM program. This chart also includes our historical NAV per share, which highlights how this important metric has increased in 22 of the past 31 quarters, seeing a decrease this quarter solely due to the transition to monthly dividends in March, resulting in the March and April dividend record date both falling into the first fiscal quarter, reducing NAV per share by an additional $0.50. Excluding this one-time reduction, NAV per share would have risen to $26.02, reflecting a 0.6% increase. Over the long term, our net asset value has steadily increased since 2011 and grown by $3.55 per share or 16% over the past 8 years.
Also we have again added the KPI slides 26 through 30 in the appendix at the end of the presentation that shows our income statement and balance sheet metrics for the past 2 years. Slide 30 is a new slide comparing our nonaccruals to the BDC Industry. You will see that our nonaccrual rate of 0.6% of cost is significantly lower than the industry average of 3.7%, and that the broader industry has experienced an increase in nonaccruals of 0.3% since the previous quarter, while ours have remained steady and low. This highlights the strength in credit quality of our core BDC portfolio. Moving on to Slide 7. You will see a simple reconciliation of the major changes in adjusted NII and NAV per share on a sequential quarterly basis. Starting at the top, adjusted NII per share was up $0.10 in Q1 primarily due to: first, the nonrecurrence of the annual excise tax, which was $0.13 in the previous quarter related to unpaid spillover; and second, an increase of $0.09 in non-CLO net interest income, reflecting the full period impact of Q4 originations.
This was offset by an increase in operating expenses, excluding excise taxes and dilution from the increased net ATM and DRIP share count, reducing NII by $0.06 and $0.04, respectively. On the lower half of the slide, NAV per share decreased by $0.34, primarily due to the $0.50 reduction from the change to a monthly dividend payment structure discussed earlier. Net realized gains and unrealized depreciation added $0.25 to NAV per share. There was no dilution from the ATM and DRIP program. Slide 8 outlines the dry powder available to us as of quarter end, which totaled $430.3 million. This was spread between our available cash, undrawn SBA debentures and undrawn secured credit facility. This quarter end level of available liquidity allows us to grow our assets by an additional 44% without the need for external financing, with $224 million of quarter end cash available, and that's fully accretive to NII when deployed, and $136 million of available SBA debentures with its low-cost pricing also very accretive.
In addition, all $301 million of our baby bonds, effectively all our 6% plus debt is callable now, creating a natural protection against potential continuing future decreasing interest rates, which should allow us to protect our net interest margin, if needed. These calls are also available to be used prospectively to reduce current debt. We remain pleased with our available liquidity and leverage position, including our access to diverse sources of both public and private liquidity and especially taking into account the overall conservative nature of our balance sheet. Also, our debt is structured in such a way that we have no BDC covenants that can be stressed during volatile times, especially important in the current economic environment. Now I would like to move on to Slides 9 through 12 and review the composition and yield of our investment portfolio. Slide 9 highlights that we have $968 million of AUM at fair value, and this is invested in 46 portfolio companies, 1 CLO fund, 1 joint venture and various new BB investments.
Our first lien percentage is 86.9% of our total investments, of which 22% is in first lien last out positions. On Slide 10, you can see how the yield on our core BDC assets, excluding our CLO investments, has changed over time especially this past year, reflecting the recent decreases to interest rates. This quarter, our core BDC yield remained unchanged from last quarter at 11.5%, despite the 10 basis points reduction in average SOFR. The CLO yield decreased to 13.7% from 16.4% last quarter, reflecting the inclusion of the new BB CLO debt investments to this category that have a yield of approximately 10%. Slide 11 shows how our investments are diversified through primarily the U.S., and on Slide 12, you can see the industry breadth and diversity that our portfolio represents, spread over 40 distinct industries in addition to our investments in the CLO JV and BB CLO debt securities, which are all included as structured finance securities.
Moving on to Slide 13. 7.9% of our investment portfolio consists of equity interest, which remain an important part of our overall investment strategy. This slide shows that for the past 13 fiscal years, we had a combined $42.5 million of net realized gains from the sale of equity interest or sale or early redemption of other investments. This includes $2.2 million of realized gains on the sale of our identity equity investment this quarter. This long-term realized gain performance highlights our portfolio credit quality, has helped grow our NAV and is reflected in our healthy long-term ROE. That concludes my financial and portfolio review. Our Chief Investment Officer, Michael Grisius, will now provide an overview of the investment market.
Thank you, Henri. Today, I will give an update on the market since we recently spoke with everyone in May and then comment on our current portfolio performance and investment strategy. Year-to-date deal volumes in our market have been down significantly every month as compared to 2024 and are down further still as compared to 2021 through 2023. We believe that M&A activity will invariably revert to historical levels, but that pickup in deal volume appears to be postponed for the time being. The combination of historically low M&A volume in the lower middle market and an abundant supply of capital is causing spreads to tighten and leverage to remain full, as lenders compete to win deals especially premium ones. We've also experienced repayment activity from some of our lower leverage loans being refinanced on more favorable terms. The historically low deal volumes we're experiencing has made it more difficult to find quality new platform investments than in prior periods.
As we noted on last quarter's call, this may naturally prompt the question of, what is our approach to operating in this difficult asset deployment climate. First, the Saratoga management team has successfully managed through a number of credit cycles over many years, and that experience has made us particularly aware of being disciplined when making investment decisions and being proactive in managing our portfolio. Taking this approach has allowed us to produce unlevered realized returns in our core non-CLO portfolio of 15%. The weighted average return on our exits this quarter were consistent with our track record at 14.9%. We'll continue to invest in high-quality assets and will not lower our investment standards and take on more risk than we feel is prudent, just because the market is presently difficult. We believe our shareholders will appreciate this approach in the long run. Second, we're greatly expanding our business development efforts and are investing in resources to provide greater bandwidth for our professionals to dedicate themselves to this effort.
We have a new Managing Director joining us this summer, who has a strong origination and investment track record in our markets. We've also recently hired a VP of Portfolio Management and a business development analyst, and we have 2 new investment associates joining us this summer. All of these investments will allow our professionals to better leverage themselves and shift more emphasis on investment origination. While we have developed a strong presence in the lower end of the middle market, the number of companies in our marketplace is vast compared to the traditional middle market and is occupied with hundreds of thousands of businesses. We believe the number of deal sources in our market that we have yet to build relationships with far exceeds the number that we have. Further, our market benefits from a natural underpinning of deal flow, driven by business owners seeking to transition ownership as they age.
We're in the early stages of our expanded business development initiatives, but have already seen some positive results in our current pipeline and in the most recent portfolio company we closed in April. Third, our existing portfolio serves as a healthy source of deal flow. Our payoffs, as again seen this quarter, tend to be lumpy as our portfolio investments reached scale and maturity, while our new portfolio companies tend to be small initially and provide an embedded resource for asset deployment as we support their growth. Because of the nature of the way we invest our capital in this manner, follow-on activity has exceeded our new portfolio company deployment in each of our past 5 fiscal years. In summary, the way we're approaching the currently challenging environment is to first stay disciplined on asset selection; second, invest in and greatly expand our business development efforts in a market that is still largely underpenetrated by us; and third, continue to support our existing healthy portfolio companies as they pursue growth.
The relationships and overall presence we've built in the marketplace, combined with our ramped-up business development initiatives, give us confidence in our ability to achieve healthy portfolio growth in a manner that we expect to be accretive to our shareholders in the long run. In the midst of these market conditions, we had $50 million of gross originations in the lower end of the middle market this quarter. Now before leaving this topic, I'll also point out that we continue to believe that the lower end of the middle market is the best place to be in terms of capital deployment. As compared to the larger end of the middle market, the due diligence we're able to perform when evaluating an investment is much more robust. The capital structures are generally more conservative with less leverage and more equity. The legal protections and covenant features in our documents are considerably stronger, and our ability to actively manage our portfolio through ongoing interaction with management and ownership is greater.
As a result, we continue to believe that the lower middle market offers the best risk-adjusted returns, and our track record of realized returns reflects this. A new initiative I'd like to highlight is that we have recently seen a new opportunity to invest BB and BBB CLO debt securities. These investments have performed well through numerous economic cycles in the past, experiencing very low long-term default rates, while also providing enhanced yields relative to comparably rated corporate debt securities. Further, our underwriting process driven by quantitative metrics that measure individual manager and deal level performance allows us to identify those managers and deals we believe will outperform over the long term and provide attractive risk-adjusted returns for our shareholders. During this past quarter, we invested in 9 different CLO BB securities across 7 different CLO managers for a total notional amount of $13 million.
We anticipate third-party managed CLO BBs and, to a lesser extent, CLO BBBs will play a role in our investment portfolio going forward and will also allow us to take advantage of dislocations in the liquid loan and high-yield credit markets. Our underwriting bar remains high as usual. In a very tough market, yet we continue to find opportunities to deploy capital. As seen on Slide 14, our more recent performance has been characterized by continued asset deployment to existing portfolio companies, as demonstrated with 8 follow-ons in calendar year 2025 thus far, and we have invested in 3 new platform investments this calendar year as well. More recently, during calendar Q2, we closed 1 new portfolio company. Overall, our deal flow is increasing as our business development efforts continue to ramp up. Our consistent ability to generate new investments over the long term, despite ever-changing and increasingly competitive market dynamics, is a strength of ours.
Portfolio management continues to be critically important, and we remain actively engaged with our portfolio companies and in close contact with our management teams. They remain the same 2 portfolio companies that we are actively managing as discussed in previous quarters. But in general, our portfolio companies are healthy, and the fair value of our core BDC portfolio is 1.7% above its cost. 86.9% of our portfolio is in first lien debt and generally supported by strong enterprise values in industries that have historically performed well in stressed situations. We have no direct energy or commodities exposure. In addition, the majority of our portfolio is comprised of businesses that produce a high degree of recurring revenue and have historically demonstrated strong revenue retention. At quarter-end, we have the same 2 investments on nonaccrual, namely Pepper Palace and Zollege, consistent with last quarter.
We continue to hold them on nonaccrual following their restructurings, with Zollege particularly demonstrating notable improvement in company performance. Looking at leverage on the same slide, you can see that industry debt multiples increased north of 5x with unitranche loans in the mid-5s. Total leverage for our overall portfolio decreased slightly to 5.22x, excluding Pepper Palace and Zollege, reflecting lower leverage across several portfolio companies. Slide 15 provides more data on our deal flow. As you can see, the top of our deal pipeline is significantly up from the end of calendar year 2024, despite the current M&A activity in the lower middle market remaining low. This recent increase of deal sourced is a result of our recent business development initiatives, with 18 of the term sheets issued over the last 12 months being from deals that came from new relationships. Overall, the significant progress we've made in building broader and deeper relationships in the marketplace is noteworthy because it strengthens the dependability of our deal flow and reinforces our ability to remain highly selective as we rigorously screen opportunities to execute on the best investments.
As you can see on Slide 16, our overall portfolio credit quality and returns remain solid. As demonstrated by the actions taken and outcomes achieved on the nonaccrual and watch list credits we had over the past year, our team remains focused on deploying capital and strong business models where we are confident that under all reasonable scenarios, the enterprise value of the businesses will sustainably exceed the last dollar of our investments. Our approach and underwriting strategy has always been focused on being thorough and cautious at the same time. Since our management team began working together almost 15 years ago, we've invested $2.36 billion in 122 portfolio companies and have had just 3 realized economic losses on these investments. Over that same time frame, we've successfully exited 82 of those investments, achieving gross unlevered realized returns of 15% on $1.26 billion of realizations.
Even taking into account the recent credit write-downs of a few discrete credits, our combined realized and unrealized returns on all capital invested equals 13.4%. Total realized gains for the quarter were $2.9 million, of which, this quarter's identity realization produced a gross IRR of 22.6% with a $2.2 million realized gain, continuing our track record of successful capital deployment. We think this performance profile is particularly attractive for a portfolio predominantly constructed with first lien debt. Consistent with previous couple of quarters, we have only 2 investments on nonaccrual. Although both Pepper Palace and Zollege have been restructured, we are still classifying Pepper Palace as red and Zollege as yellow, with a combined fair value of $6.9 million, including equity. Pepper Palace continues to be managed actively with several initiatives underway. Zollege has demonstrated notable improvements in company performance that resulted in a $1.1 million appreciation in its value this quarter.
In addition, during the quarter, our overall core non-CLO portfolio was marked up by $2.6 million of net appreciation, including Pepper Palace and Zollege, reflecting the strength of our overall portfolio. Our overall investment approach has yielded exceptional realized returns and recovery of our invested capital, and our long-term performance remained strong as seen by our track record on this slide. Now moving on to Slide 17. You can see our second SBIC license is fully funded and deployed, although there is cash available there to invest in follow-ons, and we are currently ramping up our new SBIC III license with $136 million of lower cost undrawn debentures available, allowing us to continue to support U.S. small businesses, both new and existing. This concludes my review of the market, and I'd like to turn the call back to our CEO. Chris?
Thank you, Mike. As outlined on Slide 18, our latest dividend of $0.75 per share in aggregate for the quarter ended May 31, 2025, was paid in 3 monthly increments of $0.25. Recently, we declared that same level of $0.75 for the quarter ended August 31, 2025, marking the second quarter of our new dividend payment structure. The Board of Directors will continue to evaluate the dividend level on at least a quarterly basis, considering both company and general economic factors, including the current interest rate and macro environment's impact on our earnings. Moving to Slide 19. Our total return over the last 12 months, which includes both capital appreciation and dividends, has generated total returns of 22%, beating the BDC index's 3% for the same period by over 7x. Our longer-term performance is outlined on the next Slide 20. Also our 5-year and 3-year returns both place us above the BDC index.
And since Saratoga took over management of the BDC in 2010, our total return has been 826% versus the industry's 294%. On Slide 21, you can further see our last 12 months' performance placed in the context of the broader industry and specific to certain key performance metrics. We continue to focus on our long-term metrics such as return on equity, NAV per share, NII yield and dividend growth and coverage, all of which reflect the value our shareholders are receiving. While NAV per share growth and dividend coverage are lagging in this past year, this is largely due to last year's 2 discrete nonaccrual investments previously discussed as well as the aforementioned impact of the shift to a new dividend structure impacting this quarter's NAV per share growth. In addition, we had significant recent repayments that have reduced Q1's NII as AUM has recently shrunk, resulting in us having healthy levels of cash to deploy.
In this volatile macro environment, we will be prudent in deploying our significant available capital into strong credit opportunities that meet our high underwriting standards. We also continue to be one of the few BDCs who have grown NAV accretively over the long term with our long-term return on equity at 1.5x the industry average. Moving on to Slide 22. All of our initiatives discussed on this call are designed to make Saratoga Investment a leading BDC that is attractive to the capital markets community. We believe that our differentiated performance characteristics outlined in this slide will help drive the size and quality of our investor base, including adding more institutions. These differentiating characteristics, many previously discussed, include maintaining one of the highest levels of management ownership in the industry at 11.1%, ensuring that we are strongly aligned with our shareholders.
Looking ahead on Slide 23, as we navigate through a reshaped yield curve environment with decreasing short term and increasing long-term rates and an uncertain economic outlook in the face of an ever-evolving geopolitical landscape, we remain confident that our reputation, experienced management team, robust pipeline and historically strong underwriting standards and time and market-tested investment strategy will serve us well to continue to steadily increase our portfolio size, quality and investment performance over the long term. This will allow us to deliver exceptional risk-adjusted returns to shareholders and to navigate through the current challenges in the market and uncover opportunities in the current and future environment. Recognizing the challenges posed by the current tariff discussions and the volatility seen in the broader macro environment, we also believe that our strong balance sheet, capital structure and liquidity places us in a strong position to successfully address these types of uncertainties. In closing, I would again like to thank all of our shareholders for their ongoing support. I would like to now open the call for questions.
分析師問答
And our first question will be coming from Erik Zwick of Lucid Capital Markets.
I wanted to kind of just start on your commitment to kind of getting back to AUM expansion, and I realize there's some variables outside of your control that have kind of driven the declines over the past couple of quarters. But as you kind of frame up the opportunities now, it sounds like the efforts you've made on kind of the nonsponsored origination side are showing some positive trends. I think the things that are harder to predict now are just the level of prepayments going forward. And I guess, to some extent, you may have some visibility into potential relatively large maturities that could be coming due over the next quarter or 2. But as you kind of frame those all together, what is your expectation for your ability to return growing the portfolio over the next quarter or 2?
I will begin and then pass it to Mike. You articulated it well. Predicting redemptions is challenging, just like forecasting originations. We've concentrated on maintaining portfolio quality. Henri shared some metrics showing that while our assets under management have decreased because net originations did not meet redemptions, the credit quality of our portfolio is still very strong. We believe our credit performance significantly surpasses the industry average. Currently, there is a notable influx of capital into the private credit sector, yet the M&A market has slowed due to tariffs and other factors. M&A has traditionally driven much of the activity and financing, leading to increased refinancing activity but less M&A driven activity. This has created a mismatch in supply and demand, which we are managing carefully. It is not in our or our shareholders' interest to put more assets to work if they aren't high-quality assets, so we must remain cautious.
While we have encountered many opportunities, we've held back on many of them due to concerns about quality and, in some cases, pricing— but primarily it's about credit quality. With that in mind, we are launching a renewed and energized business effort. As Mike mentioned, we have been hiring new talent and have a strong pipeline that we believe will yield results over time. However, we've learned the importance of being selective, focusing on the right markets, and prioritizing credit quality rather than simply pursuing asset growth for its own sake, which will be crucial in the long term. Mike, would you like to add to that?
Yes, let me provide some additional insight. I want to directly address one of the points you mentioned concerning redemptions, which as Chris highlighted, can be quite unpredictable. However, as far as we can tell, we don't foresee any immediate concerns. Therefore, we expect our redemption experience to align with our historical patterns. Our pipeline continues to expand, not just with non-sponsored deals, but we are also developing relationships with several lower middle market sponsors and investor groups that we have not worked with in the past. This is largely because the lower end of the middle market we focus on is highly fragmented. Whenever we visit new cities, we often discover new groups that we weren't previously aware of while meeting with the familiar ones. I want to take a step back and emphasize something important about our business. We appreciate being in the lower end of the middle market.
This focus is a key reason we have achieved strong returns, like 15% over time, while maintaining low volatility and minimal loss experiences, primarily through senior debt. This segment offers an appealing environment, enabling more thorough underwriting and deeper value addition with our borrowers and ownership groups, contrasting with the upper middle market that tends to be more commoditized and focused on price rather than relationships. In our position, we can establish meaningful connections with management teams and ownership groups, often having Board observation rights or engaging actively with the teams we lend to. This involvement fosters a healthy pipeline for follow-ons, and over the last five years, our follow-on activity has actually surpassed our new origination in terms of dollar amounts, reflecting the robust relationships we maintain with our borrowers. However, this approach does necessitate considerably more hands-on involvement, not only in asset selection and underwriting, an area where we have considerable experience and discipline, but also in monitoring our portfolio.
Staying closely connected to the businesses we support boosts our follow-on activity but demands significant time investment. Under typical market conditions with normal deal activity levels, we can grow at a healthy rate as we have historically, generally seeing our origination rates outpace repayments. In today's market, particularly in the lower middle market where deal activity is at historically low levels, we found it essential to invest in our people. The investments we discussed are designed to allow our deal professionals to focus more on origination activities and better leverage their time. We are already seeing positive outcomes as this strategy starts to yield results in our pipeline. Looking ahead, we are confident this will enable us to return to a growth trajectory while maintaining our commitment to disciplined asset selection.
I appreciate the very detailed commentary there. Kind of taking some of that and realizing that the near-term growth is likely to continue to still be challenged kind of given all of the factors that you've mentioned there, it seems that the run rate of NII could continue to come in below the declared dividend here for the near term. So could you just remind us, I don't think I have it for the most recent quarter, kind of where the spillover level is, either dollar terms or on a per share basis?
Yes, Erik. At year-end, we had just over $3, and we paid out $1.24 this quarter. So we’re currently just under $2 from the February spillover. Additionally, we’ve also accumulated earnings since March 1, so we are likely closer to the $2.50 level now.
Henri, okay. And then just kind of continuing on the theme of growth being challenged in the near term, you have quite a bit of liquidity on the balance sheet and capacity to lend further. You do have some notes coming due later this year and some in early calendar '26 as well. So just kind of thoughts on how you would look to kind of replace those today with new notes versus maybe using the revolver. And I guess, there's also the unknown of where rates may be. I think the market over the next year is forecasting about another 100 basis points in Fed funds cut. But whether or not we get those, I think still remains to be seen. But just curious on your thoughts on kind of the liability and funding side of the balance sheet.
We tend to address challenges as they arise because there are many factors involved in our considerations. By the time we face those challenges, we are in a strong position with ample liquidity. This grants us considerable flexibility in managing upcoming maturities, supported by various credit facilities and cash reserves. The direction we take will largely depend on the developments in the next six months regarding originations and asset deployment. Given the significant changes we've seen in the past three months, we anticipate that the next few months could present a different economic landscape, which might be better, worse, or stable. We do not specialize in economic predictions or forecasts; instead, we focus on maintaining flexibility and a conservative approach. We recognize that now is not the time to take excessive risks. When we reach that juncture, we will make informed decisions. I apologize for not providing a definitive answer—our current strategy is based on maintaining flexibility. With numerous variables influencing the market, including potential Fed cuts and the impact of recent legislation and tariffs, we feel optimally positioned with abundant liquidity and a robust portfolio. This leaves us with various options that we intend to keep open as situations evolve.
Yes. No, that makes sense. Optionality is very positive to have. So that's great. And last topic for me, then I'll step aside, in terms of the new CLO, the BB investments kind of maybe 2 questions. One, were those new primary issues? Or were those purchased in the secondary market? And secondarily, just kind of thinking maybe longer term, it sounds like you're attracted to that asset class. How large could you potentially see that portfolio come relative to the total investment portfolio?
Sure. Our investment in this area stems from our extensive experience managing CLOs over the years, which has made us very familiar with the marketplace. Our goal is to achieve strong risk-adjusted returns, primarily through credit securities. Our research has shown that the BB asset classes typically yield results close to our targets, aligning with our private credit investments, while also boasting solid historical credit performance and liquidity. Generally, this asset class offers greater liquidity compared to others, although market disruptions can affect that. We have a detailed process for selecting the BBs and the managers we want to invest in, utilizing a tiering mechanism and analyzing different vintages. This extensive experience allows us to effectively navigate the market as we begin investing. In terms of size, the industry is substantial but not overwhelmingly large, meaning we could deploy more capital than we currently are, depending on the opportunities we see in both the BB class and our traditional private credit exposures. Regarding the mix, there is a blend of both primary and secondary investments. Recently, there has been a surge in primary issuance, influenced by seasonal patterns and payment dates, but we monitor both markets to identify the best opportunities for asset allocation.
Yes, we engage in both primary and secondary activities and focus on the opportunities available at any given time. I believe it will continue to be a mix of both.
Our next question will be coming from Robert Dodd of Raymond James.
Following up on the question about the balance sheet, you have significant liquidity and ample time to manage larger maturities. In this quarter, you did pay off a $20 million bond. However, you chose to adjust the revolvers by increasing the size of the Live Oak facility instead of using cash. Is it accurate to interpret that as a preference to retain cash for future investments while handling refinancings through other debt options? Specifically, is the inclination to use cash for growth in assets under management, or is there a likelihood that cash will be utilized primarily for debt reduction?
That's a great question and something we are always considering. However, we would like to clarify that we do not have a bias. Our focus is on optimizing flexibility. Our capital structure consists of various components, including fixed and variable rate debt, as well as cash and significant capacity. We continuously evaluate how to optimize the portfolio and approach management strategically, whether that means using cash, revolvers, or other debt solutions. We aim to avoid any inclination towards one method over another. We feel fortunate to have considerable liquidity and a solid balance sheet that enables us to handle pressures effectively, providing us with the flexibility to make timely decisions. As Henri highlighted, our strong marketplace reputation enhances our opportunities.
Yes, Robert, just to clarify one thing about the credit facility. We actually didn't opt to draw on it. Instead, we decided to increase it, which is much more strategic for us in the long term, and we have a 50% utilization. That's the reason for the draw. The more significant aspect is the increase, which provides us with more liquidity that's available to us.
Understood, and moving on to the next point. To address your question, when it comes to high-quality assets, achieving repayment is indeed a positive outcome. Your emphasis is on maintaining quality within those assets. However, there seems to be less activity in that area currently. So, if we consider the market, is it primarily about stability? Are we approaching the end of the year where even if tariffs stabilize now, it would be too late to see M&A activity until 2026? Can you provide any insights on when we might see an uptick in quality deals? While there will always be lower quality opportunities, you're seeking to avoid those. So, when might we expect the quality deals to emerge?
Sure. I'll pass this to Mike after I share a few thoughts. We have a lot of interesting deals in our pipeline. It’s competitive out there, but if we have a favorable streak, we could see significant additions in the next 3 to 6 months, though that isn’t guaranteed. Some of our sponsors are in the LOI stage while others are still in the exploration phase. We are examining some high-quality deals in our pipeline, but predicting whether we will secure them isn't something we’re going to do during this call, nor is it something we can accurately forecast. We can only focus on working hard to position ourselves to win these opportunities, but it’s a competitive market right now. We’re not concerned about our cash because we believe there are many opportunities available, and we are in the process of pursuing them. However, the timing is beyond our control on a quarterly basis. Mike?
Let me add to that. Addressing your question directly about our current situation and what we're observing in the marketplace, we continue to see a decline in deal activity, and there are no signs of recovery. With my experience, there's typically a lack of visibility in these circumstances. We don't try to predict or time our responses to these fluctuations. However, we are confident in the initiatives we are undertaking, such as investing in more resources and intensifying our efforts to focus on origination. We believe this will yield results that allow us to return to a growth trajectory, even if deal activity does not improve. We are optimistic about this outlook. Time will reveal the results, but we are confident we can operate successfully and grow our balance sheet, regardless of the recovery in the deal market. If there is a recovery, that would be an added benefit.
And I would now like to hand the call back to Christian Oberbeck for closing remarks.
Okay. Well, again, we'd like to thank everyone for joining us today, and we look forward to speaking with you next quarter.
Thank you, everyone, for joining us today. We look forward to speaking to everyone next quarter. This concludes today's conference call.